“Hi Gary. I’d like to start investing in real estate and would rather use my retirement funds. Can I buy real estate using my IRA?”
Answer:
Yes, and I’ve done it myself a couple of times.
You must have a self-directed retirement account with a company (aka “custodian”) that allows real estate IRAs.
Some basics are:
– You can buy any type of real estate: houses, condos, raw land, commercial properties, apartments, etc.
– You can buy a partial interest in a property, which means your IRA can partner with anyone, including yourself (be careful w/ bookkeeping if you partner w/ yourself.)
And you must follow the rules, including:
1. You or your business cannot occupy the property.
2. You cannot buy a property from yourself, your spouse, or certain family members.
3. You cannot sell a property to yourself, your spouse, or certain family members.
4. You can finance the property, but it must be “non-recourse”, meaning that the property is sole security and the lender cannot go after the IRA for any loss.
5. All income and expenses from the property flow into and out of your IRA, not you personally. (i.e. You can’t pay the bills from your personal account or receive the income.)
There are additional rules, so please consult your tax professional for more info. (By the way, if your tax pro says you can’t buy real estate in your IRA, tell them to check again or go find another tax pro.)
With San Diego real estate prices so attractive right now, if you’re interested in investing in real estate with your IRA, call me at (858)457-KENT.
